Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:10 AM ET
S&P 500: +4.50; 1,547.00
NASDAQ 100: +12.75; 2,220.00
Dow: +33; 13,881
NIKKEI 225: +1.17%; 16,698.08 (+192.45)
HANG SENG: +3.89%; 31,586.90 (+1,181.68)
SHANGHAI SE COMPOSITE: +2.83%; 5,748.00 (+158.37)
BSE SENSEX 30: +3.82%; 19,977.67 (+734.50)
FTSE 100: +0.69%; 6,707.10 (+45.80)
CAC 40: +0.62%; 5,830.87 (+36.00)
XETRA-DAX: +0.70%; 8,005.21 (+56.04)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +1.01%; $92.79 (+$0.93)
Gold: +0.70%; $793.00 (+$5.50)
Natural Gas: +0.85%; $7.28 (+$0.06)
Silver: +1.44%; $14.485 (+$0.205)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
Verizon's Net Drops on Items, But Beats By a Penny
Verizon reported a 34% drop in third-quarter net income to $1.27 billion, or $0.44/share, due to one-off items related to international taxes and a spin-off. However, adjusted EPS of $0.63 beat the Street's consensus estimate by a penny. Revenue growth of 5.8% to $23.77B topped estimates of $23.67B. Operating income increased 19% to $4.2B. "In recent years, we have transformed our business model and revenue base. Our results throughout 2007, and especially in the third quarter, show that our strategy has been successful. We expect to build on these results in the fourth quarter and beyond," commented CEO Ivan Seidenberg (see earnings call transcript later). Verizon added 285,000 new broadband connections, led by 229,000 FiOS [FTTP] connections, but suffered a steep y/y decline of 41% overall. Verizon added 202,000 new FiOS TV customers (now 717,000 in total). Verizon Wireless gained 1.6M new subscribers, compared to adds of 1.2M for AT&T and a loss of 337,000 for Sprint Nextel. Verizon said it repurchased nearly $800M of its common stock during the quarter and raised its calendar year target for repurchases by $500M for a total of $2.5B. Shares of Verizon gained 1.5% to $45.60 on Friday and were last up 0.8% to $45.98 in thin pre-market activity.
Commentary: Verizon Discovers Symmetrical Internet Service • Verizon Wireless Unveils Device to Rival iPhone • Verizon's FiOS Could Impact Cablevision Buyout Vote - WSJ
Stocks to watch: VZ. Competitors: T, S, Q, DT, CMCSA. ETFs: TTH, XLK, IYZ, IXP
BEA to Icahn: We'll Sell, But Not for $17/Share
BEA Systems' board of directors responded to activist investor Carl Icahn's repeated calls for the company to sell itself in a letter Monday morning, saying it was not opposed to a sale, but felt Oracle's $17/share offer which expired over the weekend undervalued the company. "The Board and management of BEA Systems are not opposed to an acquisition of the company. In fact, we are currently exploring ways to maximize shareholder value, including the possible sale of the company. The reason that Oracle’s $17.00 per share proposal is unacceptable to the Board is because it significantly undervalues BEA, and consistent with our fiduciary duty we will continue to vigorously oppose a sale to Oracle or anyone else at that price in order to protect the interests of all BEA shareholders." The board reiterated its willingness to sell the company at $21/share, a price ridiculed by Oracle, calling it "impossibly high," (full story). Jefferies analyst Katherine Egbert said in a note it's likely BEA's estimate of $21/share means they have had interest from other parties.
Commentary: BEA Sets $21/Share Takeout Price, Oracle Rejects • BEA's Ball Rolls Into Icahn's Court
Stocks to watch: BEAS, ORCL
Earnings call transcript: BEA Systems F2Q08 (Qtr End 7/31/07), Oracle F1Q08 (Qtr End 8/31/07)
Barrick Gold to Buy Arizona Star for C$773M
Barrick Gold Corporation announced it has entered an agreement to acquire fellow Canadian gold miner Arizona Star Resource Corp. for C$773 million, or C$18.00/share in cash. The offer represents a 27% premium over Arizona Star's 20-day volume weighted average trading price on the Toronto Stock Exchange. In a statement, Barrick said its offer has been unanimously approved Arizona Star's board and all directors and officers of the company have entered into a written agreement to tender their shares. In addition, Barrick has reached a tender agreement with FCMI Resources Ltd, Arizona Star's largest shareholder. Arizona Star's main attraction is its 51% interest in the Cerro Casale deposit located in Chile (Kinross owns the remaining 49%), which is said to be one of the world's largest undeveloped gold and copper deposits. Barrick CEO Greg Wilkins commented, "Cerro Casale is an attractive, long-life asset that we look forward to adding to our unrivalled project pipeline." Shares of Barrick Gold gained 1.85% to $43.05 on Friday and Arizona Star ended slighter higher at $15.24. Shares of Barrick, Arizona Star and Kinross are all trading to the upside in thin pre-market activity.
Commentary: Barrick Gold Looks Ready To Make Acquisition • Citigroup Boosts Estimates For Barrick, Freeport, NovaGold • Selling Long Positions, Going Short and Buying Gold
Stocks to watch: ABX, AZS, KGC
Humana Jumps 5.5% on Strong Guidance, Membership Growth
Humana Inc. reported a 90% jump in its Q3 earnings, on a strong one-time gain in its government healthcare unit and solid membership growth, especially in the Medicare Advantage program. Shares rose 5.56% in pre-market action (as of 8:03 AM ET). Net income was $302.4 million, good for EPS of $1.78, versus $0.95 a year ago; sales rose 12% to $6.3 billion. EPS were $1.53 on an adjusted basis. Consensus analyst estimates were for adjusted EPS of $1.49 on sales of 6.2 billion. The company expects some of its one-time gains to boost earnings again in Q4, as well as into FY2008. The company saw HMO membership grow 2.2% to 11.3 million members in the latest quarter, while membership in Medicare Advantage jumped 15% to 1.14 million members. Humana expects Q4 EPS in a range of $1.27 to $1.32, FY EPS of $4.75 to $4.80, and FY2008 EPS of $5.30 to $5.50. Wall Street is expecting EPS of $1.34 in Q4, $4.52 for FY 2007 and $5.20 in FY 2008. CEO Michael B. McCallister believes the latest quarter "positioned us well to extend our industry-leading growth in both revenues and earnings through 2008 and beyond."
Commentary: Friday's Options Report: MSFT, Terso, HAL, Wellcare, EWJ, & IVV • Humana Beats and Raises; Medicare Payments May Be Problematic
Stocks/ETFs to watch: HUM. Competitors: UNH, AET, CI, CVH, WLP. ETFs: IHF
RadioShack Swings to Profit Despite Sales Drop; Shares Gain 12%
RadioShack on Monday posted third-quarter earnings of $46.3M ($0.34/share) even as sales fell 9.4% to $960.3M on an 8.6% drop in same-store sales. The profit topped analysts' estimates for earnings of $0.26/share, on average, but revenue was shy of the $990M average analyst forecast. The electronics retailer had a loss of $16.3M ($0.12/share) in the year ago period. Gross margins expanded to 51% from 46.1% a year earlier, aided by improved inventory management, while selling, general and administrative expenses declined 13% as RadioShack tightened spending. Revenues continue to be challenging mainly due to weakness in post-paid wireless customers, which account for more than half of RadioShack's wireless sales and more than 15% of its revenue. CEO Julian C. Day said: "We are addressing those challenges energetically and hope that having configured the business for increased profitability, we will now prove successful in configuring it for growth," (full earnings call transcript later today). Competition from the likes of Best Buy and Circuity City also are hurting sales of wireless phones, which represent about 33% of the company's sales. Shares are up 12.0% in pre-market trading.
Commentary: Is Radio Shack Poised for Another Double?
Stocks to watch: RSH. Competitors: CC, BBY, WMT, TGT
Hertz Posts Strong Earnings Growth, Guidance
Car-rental company Hertz Global Holdings said Monday its Q3 net income rose 51% on record revenue, and said full-year 2007 revenue and income will be at the upper-end or above prior guidance of $8.5-8.6 billion in revenue and EPS of $1.15 to $1.22. Third-quarter earnings were $162.7 ($0.50/share), up from $107.5 million ($0.46/share) a year ago. Adjusted EPS were $0.65 vs. $0.48, beating analyst estimates of $0.57. Revenue climbed 9.4% to $2.45 billion from $2.24 billion, beating analysts' $2.38 billion revenue forecast. Car rental revenue was up 11% to $1.98B, while equipment rentals climbed just 2.6% on U.S. housing-market weakness which saw rental prices fall 0.1%. "Equipment rental volume continues to be affected by slower growth in the U.S. construction market," CEO Mark P. Frissora said. The company operated just over half a million cars during the quarter. "Management's strategy to grow revenue, improve operating efficiency and offset rising fleet costs will continue to generate sustainable operating performance improvement," Fitch analyst William Artz wrote on Oct. 4, upon revising Hertz's debt outlook to positive from stable. Hertz has dismissed more than 2,000 employees in an effort to reduce costs. Shares have climbed 48.6% since the company went public last November.
Commentary: Ideal Capital Structure For the Auto Retailers
Stocks to watch: HTZ. Competitors: CAR, URI
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• Packaged food and cereal producer Kellogg Company (K) saw its net income climb 8.5% in its latest quarter to $305 million, good for EPS of $0.76. Sales rose 6% to $3 billion. Analysts were expecting EPS of $0.73. Shares rose 0.40% in pre-market action (as of 8:43 AM ET) despite soft guidance for FY2008 EPS, which the company expects to be $2.97 a share, vs. $3.03 estimated by analysts. The company plans to increase its ad spending going forward after an advertising push sent U.S. sales higher 4%. (source: Bloomberg)
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Last Week's Action
Friday morning's big news from Microsoft's (MSFT) earnings influenced markets throughout the day. Prior to the opening, Mister Softie reported a 23% increase in Q3 earnings -- beating analysts' estimates by 6 cents a share and raising its outlook for the year. In response, the stock hit $36 a share (highest since 2001) and it closed at $35.03, up $3.04 (+9.5%).
But that wasn't the only big news: Countrywide Financial (CFC), the big mortgage lender, reported a loss of $1.2 billion but went on to say that it would return to profitability in Q4, which caused a rush not only to buy CFC but a host of other financial services stocks.
The overall market was also buoyed by the hope of another rate cut by the Fed this week.
Those pieces of good news brought buyers into the broader market -- but especially technology and financial stocks -- to finish off the week in fine style. For the week, the Dow Industrials gained 2.1%, the S&P 500 was up 2.3%, and the Nasdaq led the way again gaining 2.9%.
On Friday alone, the Dow Jones Industrial Average gained 135 points at 13,807. The S&P 500 was up 21 point at 1,535, and the Nasdaq gained 53 points to close at 2,804. Volume on the Big Board totaled 1.4 billion shares and 2.5 billion traded on the Nasdaq. Breadth was positive on both exchanges: 28-to-8 on the NYSE and 19-to-10 on the Nasdaq.
Energy stocks were higher too, the result of another new record high for crude oil (December contract) at $92.22 a barrel. Crude prices closed at $91.86, up $1.40, and the Amex Energy SPDR (XLE) closed at $76.95 up $1. Gold futures (December contract) closed at $787.50, up $16.50, after hitting $787.80 -- its highest price in nearly 28 years. The Philadelphia Gold/Silver Index [XAU] also closed at a record high, up $5.22 at $182.42.
What the Markets Are Saying
On Friday, Oct. 19, we saw the worst sell-off since early August (down 2.6%), so in a sense this week was just a partial repair to that damage.
Some of the internal indicators are now turning upward and the stochastic even gave a buy signal, but bounces from the bottom of current trading zones, like the two last week, to the top have become commonplace (seven so far this year).
Unless we get a genuine breakout with heavy volume and very positive breadth along with some impressive follow-through, it's best to keep your trading money in cash. Long-term investment positions should remain undisturbed since long-term and intermediate-term trends remain up.
Today's Trading Landscape
There are no significant economic reports due today but, again, plenty of earnings.
Look for quarterly earnings from the following companies: Acadia Realty, Advanced Analogic Technologies, Alberto Culver, Allmerica Financial, Alpharma, American Financial Group, Ashland, Berkshire Hills Bancorp, CB Richard Ellis Group, CF Industrial Holdings, CH Energy Group, CNA Financial, Coachmen Industries, Compass Minerals International, Credicorp, Deltic Timber, DJ Orthopedics, Ducommun, Ectel Ltd., Enbridge Energy Management, Entegris, FFM Technologies, Fording Canadian Coal, Grey Wolf, Hanger Orthopedic Group, Health Care Property Investors, Henry Jack & Associates, Hertz Global Holdings, Humana, Kaydon, Kellogg, Kona Grill, Loews, Louisiana Pacific, Marquee Group, Nam Tai Electronics, Northwest Airlines, Pitney Bowes, Polyone, Post Properties, Powerwave Technologies, Principal Financial Group, Radioshack, Rent A Center Inc., Shoretel, Sierra Pacific, Simon Property Group, Sinopec Shanghai Petrochemical, Spherion, Statoil, Stratus Properties, Superior Energy Services, Titan International, Universal Health Services, Verizon Communications, Vertex Pharmaceuticals, Vulcan Materials, Winn Dixie Stores, Zoom Technologies and many others.
Crude oil is up again this morning and many traders are saying that crude at $100 a barrel is a certainty. But the focus on oil takes a back seat to earnings and the Fed meeting on Wednesday.
Asian Headlines (via Bloomberg.com)
Asian Stocks Rise for Third Day; Nissan Motor, Mitsubishi UFJ Lead Gains Asian stocks rose, driving benchmarks in Hong Kong, India, South Korea and Malaysia to records, after Nissan Motor Co. reported profit that exceeded analysts' estimates and oil surpassed $93 a barrel for the first time.
PetroChina Raises $8.9 Billion After Shanghai Offering Draws Record Demand PetroChina Co., the nation's biggest oil producer, will raise 66.8 billion yuan ($8.9 billion) in the world's biggest share sale this year to expand refineries and increase output at oilfields.
India's Sensex Exceeds 20,000 For First Time on Record Overseas Investment India's Sensitive Index topped 20,000 for the first time today, doubling in less than two years, as U.S. and European investors bought a record number of shares in the world's second-fastest growing major economy.
Toshiba Increases Annual Net Income Estimate by 50 Percent on Chip Demand Toshiba Corp. raised its full-year profit forecast by 50 percent, beating some analysts' estimates, on a one-time gain and demand for semiconductors used in mobile phones and portable music players such as Apple Inc.'s iPod.
Yuan Rises Most Since Dollar Link Ended as China Acts to Cut Trade Surplus The yuan rose the most in two years after China's central bank signaled it will allow the currency to appreciate faster to help narrow a record trade surplus and slow inflation.
Japan's Retail Sales Unexpectedly Rise on Demand for Gasoline, Cold Drink Japan's retail sales unexpectedly rose for a second month in September as lingering summer heat spurred demand for cold drinks and two long weekends prompted people to fill up their gas tanks and drive.
European Headlines (via Bloomberg.com)
Dollar Falls to Record Low Against Euro as Bets on Fed Rate Cut Increase The dollar fell to a record low against the euro on speculation the Federal Reserve will cut interest rates this week to prevent the worst U.S. housing slump in 16 years from slowing the economy.
UBS Losing Shareholders' Confidence as Manager of Most Money for Affluent UBS AG, the Zurich-based banking giant that manages the most money for the rich, is getting no respect from its shareholders who are beginning to wonder what happened to their investment.
StatoilHydro Net Rises 28 Percent as Oil Climbs to Record, Tax Costs Drop StatoilHydro ASA, Norway's largest oil company, said third-quarter profit climbed 28 percent, boosted by record oil prices and currency gains.
Resolution Drops Support for Bid by Standard Life as Pearl Can Block Deal Resolution Plc, the target of the biggest takeover fight for a U.K. insurer since 2000, dropped its support for an offer by Standard Life Plc after rival Pearl Group Ltd. made a higher bid.
Scania Third-Quarter Net Rises 37 Percent on Russia, Eastern Europe Growth Scania AB, Sweden's second-largest truckmaker, said third-quarter profit jumped 37 percent on surging sales in Russia and eastern Europe.